Experts doubt tax-snitching can bring in new revenue

Some tax experts are raising questions over the effectiveness of the new federal plan that would pay whistleblowers to squeal on offshore tax evaders. They are wondering just how much the government will recoup in unpaid taxes and whether Ottawa has the resources to make such a program cost-effective.

Toronto tax lawyer Jonathan Garbutt said he doesn't believe the government has put much thought into the Stop International Tax Evasion Program, a plan in which snitches could receive up to 15 per cent of tax collected if their information led to the collection of unpaid taxes. The reward would apply only to amounts exceeding $100,000 in federal tax.

"The announcement and the discussion is far greater than the actual proposed legislation. Because it's nothing," Garbutt told CBC News. "At this point it's just a throwaway in the sense that somebody thought this was a good idea and put it in the budget to give something interesting."

"I know for a fact they have not thought this through based on what they're doing."

The Canada Revenue Agency has said that it has identified over $4.5 billion in unpaid tax. But Garbutt questioned whether the CRA has the resources to effectively pursue a whistleblower program to reclaim some of this money.

He said he has found that the department is already short-staffed when it comes to dealing with its Voluntary Disclosure Program, where people voluntarily come forward to disclose unpaid taxes. Add to that, he said, the fact that  the government plans to cut $60 million from the CRA.

"They don't have enough officers to process the files in a timely manner with respect to people who want to come in voluntarily and do the right thing," he said. "How the heck, since they're cutting back, are they going to find enough people to work these files."

In a news conference shortly after the release of the budget, Finance Minister Jim Flaherty said the government is looking for "good clean information" and not from anyone "who has been convicted.

"We're not looking for rogues to turn in other rogues."

But Garbutt said the program will likely also bring out aggrieved spouses, disgruntled former employees, burned business partners and just about anyone who has a beef with a suspected tax evader.

He suggested the CRA needs set up a similar program as in the U.S. in which lawyers act on behalf of prospective whistleblowers to vet all the claims and work up the entire file.

"Do you think [the CRA is going to take every single crank call? It's just going to be a gong show unless they very quickly adopt the U.S. style of creating a buffer zone.

"What that means is the lawyers will separate the wheat from the chaff for them."

Cheapskate

As for the 15 per cent reward, Garbutt also said the government is being very "parsimonious" in terms of what it's offering. In the U.S., the amount can be up to 30 per cent of the recaptured revenue.

"If somebody comes in saying they know somebody who has $100 million in an offshore account that they haven't reported, [they're] not going to be happy with just getting the 15 per cent," he suggested.  

"I think they're going to have to be willing to be flexible on the amount of the reward. If they're not, then they're just not going to get the same quantity and volume as anticipated."

As well, since the program just goes after offshore tax evaders, the rewards may often go to non-Canadians who work in offshore banks and institutions.

Walid Hejazi, associate professor of international business at University of Toronto's Rotman School of Management, said that while the announcement makes for good politics, it is very questionable how much the government would actually collect.

Hejazi said the bar to prove tax evasion is high, and it will be difficult to actually collect suspect tax revenue.

"I think it's going to raise the hopes for some whistleblowers who will be let down," he said.

Hejazi said the government, instead, should focus on monitoring electronic transactions, and try to build more effective exchange-of-information agreements with offshore jurisdictions.

He suggested, however, that the new program might act as a good deterrent for offshore tax evaders.

"In terms of the amount of money they're going to generate from this, I think it will be low. But this legislation will say the likelihood of you getting caught has just gone up. As a result of that, fewer people are going to do it."